Goldman Sachs Group Inc chairman David Solomon said he has been surprised by the “benign” reaction in financial markets to the Middle East conflict, adding that it would take weeks to understand more about the situation.
“It’s very hard to speculate, because there is so much that is unknown at this point,” Solomon said at the Australian Financial Review Business Summit in Sydney yesterday morning.
Investors are considering whether this would become a more prolonged event and start to impact consumption, he added.
Photo: Reuters
US assurances on securing shipping through the Strait of Hormuz have helped steady nerves in markets. Still, the Iran war has reverberated across the region, with Israel bombarding Tehran in a fresh wave of strikes. The Islamic Republic fired missiles at Qatar, Bahrain and Oman, with Doha saying targets were not limited to military interests.
“I look at the market reaction, and I’m actually surprised,” Solomon said. “The market reaction has been benign.”
The S&P 500 index of US stocks fell less than 1 percent across Monday and Tuesday, partly reflecting its exposure to large technology shares that have held their ground.
Since Solomon spoke, some moves have extended, with the MSCI Asia Pacific Index slumping as much as 4.5 percent and South Korea’s KOSPI plunging more than 12 percent, putting it on track for the worst day on record. Taiwan’s TAIEX and Japan’s TOPIX were down more than 4 percent, while Thailand’s benchmark stock index plunged as much as 8 percent.
The jittery also spilled into currency markets, with India’s rupee weakened to a record low on fears that higher energy prices would stoke inflation.
US Treasuries have fallen this week amid the inflation concerns, reducing expectations for interest rate cuts. The US dollar has gained more broadly even on currencies seen as safe havens, and is up 1.4 percent on the yen this week and 0.7 percent on the Swiss franc.
Solomon said he was not surprised to see the VIX Index and other volatility measures climb.
“I think it’s gonna take a couple of weeks for markets to really digest the implications of what has happened both in the short term and medium term, and I can’t speculate as to how that would play out,” he said.
Much of the market response centers on oil prices, and whether crude can move unobstructed through the Strait of Hormuz. Brent rose above US$82 a barrel yesterday after rallying about 12 percent over two days, the biggest gain since 2020.
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